DY. COMMISSIONER OF INCOME TAX , CENTRAL CIR. -4, SURAT vs. SHRI HITESHKUMAR LALJIBHAI PATEL, SURAT

Brief facts are that assessee is an individual and a partner in M/s Paramhansh & Co. The assessee filed his return of income for assessment year 2018-19 on 30.10.2018 declaring total income of Rs.83,03,110/-. The case was selected for scrutiny. During assessment, the Assessing Officer noted that partnership firm, Paramhansh & Co. sold a property at 69/2 Ved, Surat. The said property was owned & possessed by firm Paramhansh & Co. was duly reflected in the books of account of said partnership firm. On sale of said land, the partnership firm, Paramhansh & Co. has shown Short Term Capital Gains (STCG) of Rs.2.46 crores. However, Tax Deducted at Source (TDS) under section 194A in the name of assessee, as the property was in the name of assessee in the capacity of a partner (assessee). The TDS was (A.Y 18-19) Sh. Hiteshkumar L Patel reflected in Form 26AS of assessee. The credit of TDS was not claimed by partnership firm Paramhansh & Co. On findings of such discrepancy, the Assessing Officer issued show cause notice issued against assessee on 25.01.2021 and asked to explain the TDS in the name of assessee and why STCG earned on sale of property should not be considered in the hands of assessee with respect to property, as TDS was claimed by assessee. In response to show cause notice, assessee filed detailed written submission, and furnished copy of return of income, computation of income, profit and loss account and balance- sheet. The assessee explained that property was in the name of assessee in his fiduciary capacity as a partner, factually legally and beneficially the property was owned and possessed by the partnership firm Paramhansh & Co. The capital gains on the sale of immovable property was assessable in the hand of firm, Paramhansh & Co. which was duly shown its return of income of firm, copy of return of income of said firm was filed. The assessee also stated that the return of the firm was possessed and accepted vide intimation u/s 143(1), which attains finality and there is no escapement of tax on the sale of property.

The reply of assessee was not accepted by Assessing Officer and Assessing Officer held that the property was in the name of assessee and TDS was claimed by assessee, hence, income should be considered in the hands of assessee. The Assessing Officer referred the provision of under section 198 of the Act, which prescribed that any deduction made in accordance with the foregoing provision of that Chapter shall for the purpose of computing the income of an assessee be deemed to 3 (A.Y 18-19) Sh. Hiteshkumar L Patel be income received and paid to the Central Government, shall be treated as payment of tax on behalf of person from whose income the deduction was made. The Assessing Officer accordingly made the addition of STCG of Rs.2.46 crores in the hands of assessee.

Aggrieved by the additions in the assessment order, the assessee filed appeal before ld CIT(A). Before Ld. CIT(A), the assessee filed detailed written statement of facts and submission. The submissions of assessee are recorded in para-7.1 of the order of Ld. CIT(A). The assessee in his submission, submitted that during assessment, Assessing Officer issued show cause notice requiring to furnish details regarding the income of STCG of Rs.2.46 crores on sale of immovable property be not be considered in the hands of assessee, as TDS claimed by assessee. The assessee filed his reply on 27.01.2021 and referred the contents of such reply in his submission. The assessee on the basis of reply before Assessing Officer, submitted that the impugned land was shown in the book of firm Paramhansh & Co. as stock-in-trade since assessment year 2012-13 and thereafter on 01.04.2017 the said property was converted from stock-in-trade to capital asset as the property was converted to capital asset on 01.04.2017 and on sale of property, the firm Paramhansh & Co. has shown STCG in its return of income and paid tax of Rs. 85,19,091/- @ 34.6%, which is 16.8% of total sale consideration of land of Rs.5.24 crores. In case sale of property is considered in his hand, capital gains would have been paid in case of assessee of Rs.30,29,918/- as LTCG and to be taxed @ 20% after getting benefit of indexation. Thus, assessee would have paid 5.78% of the total 4 (A.Y 18-19) Sh. Hiteshkumar L Patel sale consideration as capital gains and the revenue would have received less tax to the tune of Rs.54,89,173/- as the property really, genuinely owned and possessed and funded by the firm and on sale of it was correctly shown in the hands of firm, even though the tax on capital gains in case of firm is more than 2.75 times than would have been payable in the hands of assessee. The credit of TDS was not claimed by firm Paramhansh as it was not reflected in their Form 26AS. The Assessing Officer ignored the submission and evidence filed by the assessee and added STCG of Rs.2.46 crores unjustifiably, the assessee also furnished copy of ledger account of firm Paramhansh & Co., copy of Form 26AS of assessee, ledger account of firm for financial year 2017- 18, computation of return of income, copy of return of income with balance-sheet of partner along with intimation of order u/s 143(1) of firm. The assessee also relied on certain case law including decision of Hon'ble Kerala High Court in the case of CIT Vs Nidish Transport Corporation (1990) 185 ITR 669 (Kerala), wherein it was held that for transfer of ownership of the motor vehicle, mutation of the name in the certificate of registration was not necessary and the vehicle could be sold and purchased without following the procedure prescribed under section 31 of the Motor Vehicles Act. It was held that assessee was owner of the vehicle and they used them in their business purpose and therefore entitled for depreciation thereon.

The Ld. CIT(A) after considering the submission of assessee held that sale consideration of land was credited in the books of account of firm Paramhansh & Co. as land was converted into capital asset from stock- 5 (A.Y 18-19) Sh. Hiteshkumar L Patel in-trade on 01.04.2017 and on sale profit of STCG was offered for taxation while filing return of income for assessment year 2018-19. The entire capital gain was taxed in the hand of firm Paramhansh & Co. in accepting return vide intimation under 143(1) on 20.05.2019. Thus, the capital gains taxed suffered in the hand of firm Paramhansh & Co. are attained finality. TDS was deducted under section 194IA in the hands of assessee as the property was in the name of assessee as a partner, which is reflected in Form-26AS and credit of TDS was not claimed by partnership firm Paramhansh & Co. and it was claimed by assessee. From such fact, it was clear that property was owned and possessed by the firm Paramhansh & Co. and tax liability of capital gains was offered by the firm Paramhansh & Co. and accepted. The same capital gains cannot be brought to tax in the hands of assessee. The Ld. CIT(A) on further examination of fact recorded that the land in the book of firm Paramhansh & Co. was shown in stock-in-trade in financial year 2012- 13 and thereafter on 01.04.2017, the land was converted from stock- in-trade to capital asset as the property / land was converted to capital asset on 01.04.2017 on sale of which the firm Paramhansh & Co. has shown capital gains and had paid the tax of Rs.85,19,091/- @ 34.6%. However, if the said property would have been considered to be owned by assessee, therefore, on the sale of property the capital gains would have been paid as a LTCG @ 20% in the hands of assessee that too after availing the benefit of indexation. The Ld. CIT(A) held that there is no loss to revenue hence, invoking the provision of Sections 198 and 199 of the Act was not required in the facts of the present case. The capital 6 (A.Y 18-19) Sh. Hiteshkumar L Patel gains which has already been taxed in the hand of firm Paramhansh & Co. and in taxing the same in the hands of assessee would lead to double taxation, which is against the principle of taxation and natural justice. On the basis of such observation, the Ld. CIT(A) deleted the entire addition. Aggrieved by the order of Ld. CIT(A) the Revenue has filed present appeal before the Tribunal.

We have heard the submission of Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue and Ld. Authorized Representative (Ld. AR) for the assessee and perused the order of lower authorities carefully. The ld. Sr-DR for the Revenue submits that once the TDS benefit availed by the assessee, the assessee was required to include capital gains in his return of income under the principle of taxing statute. The income should be offered in the hands of right person and should be taxed in the hands of right person only. The assessee cannot chose the taxing of income in the hand of other person and benefit of TDS in his own hand. The Assessing Officer rightly invoked the provisions of section 198 and 199. The ld. Sr-DR for the Revenue prayed for reversing the findings of Ld. CIT(A) and to restore the order of Assessing Officer.

On the other hand, Ld.AR for the assessee supported the order of Ld. CIT(A). The Ld. AR for the assessee submits that Ld. CIT(A) granted relief on proper appreciation of fact as partnership firm has correctly offered the capital gains for the reasons that property was purchased from the partnership firm since from the beginning, it was shown in the books of account of partnership firm on the possession that the property is 7 (A.Y 18-19) Sh. Hiteshkumar L Patel registered in the name of third person, that it should be taxed in the real owner. The Ld. AR for the assessee relied upon the decision of Hon'ble Supreme Court in the case of Mysore Minerals Ltd. vs. Commissioner of Income-tax in Civil Appeal No.5374 of 1994 [1999] reported viz; 239 ITR 775 (SC), wherein it was held that though the asset was registered in the name of Director, the claim of depreciation was allowable to the assessee-company for the reasons that company could not get register of asset in its own name to asset shown in the balance-sheet of company and its payment was made from the accounts of company and therefore, assessee-company is the real owner of the said asset. The Ld. AR for the assessee submits that similarly in case of assessee the facts are also similar. Therefore, considering the fact that firm was real owner and has correctly shown capital gain and paid tax thereon. The Ld. AR for the assessee reiterated the submission on the lines of submission made before Assessing Officer that there was no loss to revenue, the firm Paramhansh & Co. has paid more tax, in offering the STCG, rather in case of assessee if the capital gains would have been considered, in the hand of assessee, it would certainly be LTCG, with the benefit of indexation. And in such case, the Revenue / Department would get less revenue as firm Paramhansh & Co. has paid taxes @ 34.6%, however, in the hands of assessee it would be chargeable @ 20% only, with the benefit of indexation. The Ld. AR for the assessee submits that there is no infirmity or illegality of the order passed by Ld. CIT(A) and he prayed before the Bench for dismissal of Revenue’s appeal. 8 (A.Y 18-19) Sh. Hiteshkumar L Patel 8. We have considered the rival submission of both the parties and have gone through the order of lower authorities carefully. We have also deliberated on various case law relied by Ld. Senior Counsel for the assessee. We find that Assessing Officer brought the STCG of Rs.2.46 crores for taxation in the hand of assessee by taking view that TDS on sale of such property was deducted in the hands of assessee and reflected in his Form-26AS. Though, the assessee has shown capital gains in the hands of firm Paramhansh & Co. We find that before Ld. CIT(A), the assessee has reiterated the similar submission as made before us. The ld. CIT(A) on appreciation of fact, held that the land in the book of firm was shown in stock-in-trade in financial years 2012- 13 to 2017-18 and thereafter on 01.04.2017 the land was converted from stock-in-trade to capital asset. The property / land was converted to capital asset on 01.04.2017 on sale of which the firm has shown capital gains and had paid the tax of Rs.85,19,091/- @ 34.6%. However, if the said property would have been considered to be owned by assessee, the sale of property the capital gains would have been paid as a LTCG @ 20% in the hands of assessee, that too after availing the benefit of indexation. The Ld. CIT(A) held that there is no loss to revenue hence, invoking the provision of Sections 198 and 199 of the Act was not required in the facts of the present case. The capital gains which has already been taxed in the hand of firm. In taxing the same in the hands of assessee, it would lead to double taxation, which is against the principle of taxation and natural justice and granted full relief to the assessee. 9 (A.Y 18-19) Sh. Hiteshkumar L Patel 9. We have examined the fact independently find merit and force in the submission made by Ld. AR for the assessee that the firm Paramhansh & Co. has paid tax of Rs.85,19,091/-. However, in case of assessee would have shown on capital gains in his hand, the gain would have been LTCG, and he was liable to pay only tax @ 20% of tax with the benefit of indexation. Therefore, we concur with the findings of Ld CIT(A) that taxing of capital gains in the hands of firm is more beneficial to the Revenue. Thus, we affirm the findings of Ld. CIT(A) with our additional above observation. In the result, the ground of appeal